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Weekly Market Report - January 30, 2024

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It’s the comeback story the market needed — a tale all the more gripping given that the corridor’s towers were struggling even before the pandemic


Landlord Fisher Brothers secured the nation's largest office lease in 2023, securing a 20-year, 18-floor deal for law firm Paul, Weiss, Rifkind, Wharton & Garrison at 1345 Avenue of the Americas. The building's owner, Fisher Brothers, spent over $120 million to modernize the building, including technology upgrades and amenities. The success at Fisher Brothers' building is indicative of the draw of Sixth Avenue in Midtown, which has seen a series of high-profile leases from legal, financial, and other corporate clients. The area's geographical advantages, proximity to transit and cultural centers, have fueled the resurgence of leasing activity. Avenue of the Americas in Midtown Manhattan has seen a surge in leasing activity, with foot traffic returning, lunch lines easing, and restaurants thriving. Owners are hoping to offer large blocks of trophy space to tenants, who are rethinking their leases. The area has seen significant capital investment in new retail space and a streetscaping plan. The turnaround has been years in the making, with major leases and increased tourism and foot traffic.



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SL Green says skepticism about the value of its 245 Park Ave. sale is misplaced


SL Green Realty recently sold a 49.9% stake in a Manhattan office tower, valued at around $2 billion, to Mori Trust, a buyer of the building. The deal was one of the largest U.S. office deals of the year, boosting the company's stock by 20%. However, the deal also involved selling over $500 million worth of the building's debt at a 6% discount. This financial engineering is becoming more common as office landlords rely on cash gifts, veiled discounts, and other financial engineering to prop up property values. Analysts question whether publicly available property valuations are inflated due to the sector's deepest crisis in decades. Landlords are increasingly handing out cash or no-rent periods to tenants in return for higher rent, which can keep annual rents and building profits high and are used to calculate building values.



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New York City's Mayor Eric Adams is aiming to boost the struggling office market by securing tax breaks for two ailing properties. The New York City Industrial Development Agency has selected two properties to participate in the Manhattan Commercial Revitalization program, known as M-CORE. The program offers a tax abatement to encourage renovations at office buildings that struggle to attract tenants. The first property, 175 Water St., is a 31-story office tower in Manhattan's Financial District, owned by investment firm 99c LLC. The tax break amounts to around $41.3M over 20 years, with the developer contributing $150M to the project. The second property, 850 Third Ave., is a 21-story Midtown East office tower built in 1960 and owned by HPS Investment Partners. The IDA projects that revitalizing these properties will generate over 2,000 jobs in three years and retail an additional 365 jobs.



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Bank of America has sent letters to employees warning them that failing to return to the office at least three times a week could lead to disciplinary action. The bank, which has around 170,000 US employees, has been in effect for over a year. The letters were sent to employees who have failed to meet the Workplace Excellence Guidelines, which require employees to report at least three days a week to the office. Other corporate giants have also revised their work-from-home policies. However, some employees continue to push back against these mandates, with 78% of employees 16 years and older working entirely in the office as of December 2023. A recent research report from the Katz Graduate School of Business at the University of Pittsburgh found no evidence that productivity suffered with employees working from home.


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SL Green, New York's largest commercial landlord, has announced a deal to pay just $7 million to settle the $182.5 million mortgage for 2 Herald Square, a sign lenders were eager to part with the vacancy-riddled property. The surprising transaction would produce a $90 million gain from purging debt from SL Green's balance sheet and the developer forecasts that this year a key performance metric would come in about 20% higher than previous estimates. SL Green acquired a 51% stake in the property six years ago in a joint venture with an unidentified Israeli investor. The firm also benefited from the sale of 717 Fifth Ave. to the parent of Gucci for $963 million. Unexpected gains from selling retail real estate helped dull the pain from continued weakness in the office market. SL Green controls 29 million square feet of space across 58 Manhattan buildings and expects to start fundraising for a $1 billion pool to invest in distressed New York mortgages.



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eBay is shedding 1,000 jobs, or about 9% of its workforce, due to a business slowdown in the technology industry. CEO Jamie Iannone stated that the company's staff size and expenses have outpaced its growth, leading to the terminations. eBay is also ending its relationship with many outside contractors. The move is part of an effort to stay more "nimble" in the face of a challenging economy. Founded in 1995, eBay is a $21 billion company with nearly 12,000 employees. However, its core business has been impacted by Amazon and other online marketplaces. The layoffs follow a previous staff cut in February 2023, when it sacked 500 workers. The layoffs come as dozens of tech companies, including Google, Amazon, and TikTok, have collectively laid off thousands. Employees who lose their jobs will be notified through a Zoom meeting, and all U.S. employees are requested to work from home on Wednesday.



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Landlords’ increasing leverage is sign of retail real estate’s recent strength


Retail property owners are shedding discounts and concessions they offered struggling tenants during the pandemic, indicating intensifying competition for retail real estate. Many landlords slashed rent prices as they struggled to fill empty storefronts during the first year of the pandemic, and some felt compelled to accept a portion of monthly sales instead of a fixed rent amount from tenants whose businesses collapsed due to government-mandated closures and social distancing. These arrangements helped retailers stay afloat and prevented landlords from losing valued tenants. Now, landlords are having a much easier time filling prime retail space and are far less likely to agree to these concessions.


Store openings outpaced closures for the second straight year in 2023 after years of net closures, according to research firm Coresight Research. Consumer spending remained resilient last year despite high inflation and recession concerns, and Americans' views on the economy are improving at the start of 2024. Retail's strong position stands in contrast to the office sector, where owners are grappling with oversupply and a drop in demand because of remote work. Percentage-of-sales agreements proliferated in 2020 as landlords sought to keep restaurants and other retailers from going out of business.

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